Judge Davis Finds Claims for Attorneys’ Fees Subject to Separate Statute of Limitations Analysis

May 16, 2019

Publication

In Winshall v. Viacom International, Inc., C.A. No. N15C-06-137 EMD CCLD, Judge Davis denied the plaintiff’s motion for partial summary judgment and granted in part the defendant’s motion for summary judgment on all counts. This suit was the latest in a string of cases related to the merger of Harmonix Music Systems (“Harmonix”) with Viacom International Inc. (“Viacom”). The plaintiff, Walter Winshall (“Winshall”), was a former shareholder of Harmonix and filed suit on June 14, 2015, raising three claims for breach of the merger agreement (Counts I-III) and one claim for malicious prosecution (Count IV). The merger, which occurred on September 20, 2006, had previously been the subject of two Court of Chancery cases. As a result, Viacom argued in its motion for summary judgment that the claims at issue were barred by the doctrine of res judicata and the statute of limitations.

In this case, the claims at issue all related to the preparation of the final 2007 and 2008 earn-out statements required by the merger agreement. Winshall alleged that Viacom delayed in preparing the statements and the delay harmed the stockholders. Judge Davis did not address the merits of these claims, however, because he found they were barred by the doctrine of res judicata and statute of limitations. Specifically, Judge Davis found that Counts I-III could have been raised in one of the two prior Court of Chancery cases. Judge Davis, however, noted that the claim for indemnification of attorneys’ fees included as part of Count I for indemnification did not arise until after the completion of the Chancery litigation, thus there could be no res judicata on this narrow claim. Accordingly, this part of the claim survived summary judgment.

Judge Davis also found that Counts I-III were time barred under the statute of limitations. A three-year statute of limitations applies to breach of contract claims, and the claims were not raised within three years of the alleged breach of the merger agreement. Judge Davis did not find that the claim for indemnification of attorneys’ fees or costs was barred by the statute of limitations because the breach did not occur until after the Chancery litigation was completed. The Chancery litigation was not completed until a final decision was entered on July 16, 2013. Given Judge Davis’s rulings, only Count I related to requests for attorneys’ fees and costs survived summary judgment.

Analysis: Claims for attorneys’ fees and costs may be subject to a separate analysis under res judicata or the statute of limitations if they arise from an indemnification provision. This is because Delaware courts have held that indemnification claims do not arise until after the completion of underlying litigation giving rise to the indemnity obligation. See, e.g., LaPoint v. AmerisourceBergen Corp., 970 A.2d 185, 198 (Del. 2009).